What employers get wrong on employment contracts

Employment contracts are designed to protect both parties from future disagreements. But if poorly devised, they can create more problems than they solve.

According to Mark Gardiner, a specialist in business and immigration law for SMEs at Teddington Legal, there are a number of factors business owners should be doing to ensure the employment contracts they issue to incoming staff are accurate, enforceable and fair.

Know your responsibilities under the Fair Work Act

Speaking on the My Business Podcast, Mark suggests that the first place to start is the Fair Work Act to ensure the pay and working conditions you are proposing are correct and comply with the law.

“There’s general confusion about our obligations. Where do I find them? Where do I go for help? And a lot of employers don’t know and they don’t know because quite frankly, it’s really bloody hard,” he says.

“What employers need to do first and foremost, when they’re employing staff, is determine if the staff they’re employing are covered by an award and if there are award obligations they must comply with.

“If they get that wrong, they could end up with some nasty penalties down the track for underpaying staff.”

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Mark says a number of high-profile businesses have been caught out in relation to this recently, including restauranteur and MasterChef judge George Calombaris, who is found to have underpaid staff to the tune of around $2 million over several years.

“Now that was inadvertent it seems, and I’m not suggesting George went out of his way to do any harm at all to his staff; it was just complicated and they got it wrong. So it’s important to understand what the obligations are,” says Mark.

Flexible working agreements

“The next step is, can you enter into what is called a flexible working agreement, a flexible employment agreement with that employee? And that is, can you have somebody on a contract, which displaces the award?” Mark says.

“The answer is yes you can, but the test is that the contractual entitlements in that contract must pass what’s called a BOOT test – a Better Off Overall Test.”

According to Mark, this means a determination of whether the employee is better off overall compared to receiving penalty rates, particularly for weekends or overtime.

Three key things every employment contract should address

When asked what he believes the three key elements every employment contract should contain, Mark responds without hesitation.

“The key would be salary: people would need to understand what they’re getting paid,” he says.

“I also think a really good job description is important, and that can be and probably should be appended to the contract so everyone knows what their obligations are.”

Having stipulated the what and the how much, Mark says the third point is to adequately address issues around what if.

“What to do when things go wrong – is there a dispute resolution mechanism? Are there performance measurements? They can be in the context of an agreement or in policies which apply to an employment relationship,” says Mark.

“But it’s like anything: when things start to go awry, how do you fix that? How do you step in and short circuit a problem?”

Mark has plenty more advice for business owners on employment contracts and other legal issues around employment on the My Business Podcast below: